Agreed, it is income at the time of mining. I am not convinced that BTC mining is like creating artwork for several reasons. Artwork does not have active markets that can be used to determine price at the date of creation. While art involves assembling supplies previously owned by the artist, bitcoin mining involves a point in time when the miner has control over something they did not previously possess. And, perhaps most telling is the matching principle in accounting that income and related expenses should be recognized together. So I doubt that deducting electric and equipment expenses now, while deferring recognition of revenue will be considered to be consistent. Then there is IRC83 which requires that deferred compensation (such as stock and options) be recognized at the fair market value when title transfers to the taxpayer, not when the investment is sold. And IRC988 requires income to be recognized when foreign currency is received for goods or services.
Regarding depreciation, in general for federal taxes, most miner expenses get deducted immediately not depreciated, because the business sets a $2,500 capitalization threshold, expensing anything below this threshold, and then accelerating depreciation of expenses over $2,500 up to IRC179 limits (often $500K). For state taxes it is possible that some expenses may need to be capitalized and depreciated. Don't forget to deduct telecomm expenses, training, reasonable business travel and home office expenses.
I am a USA CPA licensed in CA and IL, and I can be found on LinkedIn or by Google. Here is my circular 230 disclaimer. This post is intended to provide generalized tax and valuation information that is only appropriate in certain situations. It is believed accurate at this time, but these rules, alas, are constantly changing. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding tax penalties that may be imposed on any taxpayer. These contents should not be acted upon without specific professional guidance. Our liability, under any circumstances, is limited to the amount paid for our services. Please contact us if you have questions.
I'm impressed you got your certification but I'm puzzled by your position. I mean, most CPAs err on the side of caution so that might explain; and I mean no disrespect by that, it's not a bad thing. My problem with your position is that there is no "taxable event" happening. It's not currency, yet, and we honestly don't know if it ever really will be in the eyes of our Uncle Sam.
I mine with a pool,
they pay me a balance in something that can be exchanged for money, but until/unless it is exchanged there is no taxable event to report.
Even if someone gifts you a stock there is no taxable event until it is liquidated, and from there you retrieve to determine the realized gain/loss, or step it up to date of death if it's inherited, but the act of receiving is not reportable. If it's not exchanged there's no realized gain or loss. This whole darn thing could become a bad video game at some point, just a worthless "score" not exchangeable for anything. I don't see how you can advise anyone to report a mining payout, the methodology makes almost no sense.
Think about it, say you mine 40 BTC in January and they are worth $40k, but at year end they are worth $4, you expect people to report a $40k taxable event on something that became worthless within the same year? There's nothing to report until it is sold. Damn, this thread has gotten crazy, good luck to everyone hiring a lawyer for their audit defense. I guess we will all take a position and stick with it, pure intent rarely fails and you can always make a case if you had a sound approach. I'm keeping track of expenses, and if I sell BTC I will track that too, but there's no plan to report anything until I can verify a gain or loss.
You could say I am treating BTC as a stock, and what I pay on equipment is like my commission fees that are deducted from proceeds; even in a great situation I'll breakeven and wash upon sale with no reportable gain (unless BTC goes to the moon, which in that case I will gladly pay my cap gains tax on the investment IF/WHEN I exchange for USD).
Really?!?! Wow... If you had an automatic weapon, you wouldn't have any feet. Even if the "payment" was a "gift," and forgetting the fact that your statements conflict with each other and couldn't possibly be defensible when paired with you quoting a CPA referencing both income possibilities, you are suggesting that the pool had an investment and gave it to you, which would not be a claimable loss, and would make it impossible to legally run a pool. Pool gets 25 BTC block, it is $25,000 in income, they gift it to miners, they still owe income tax on $25,000 and don't have any money to pay it. What's next? Are you going to suggest the pool's receipt of the block was a gift from the miner who found it and pay all taxes on any block your equipment finds for the pool? Are you going to suggest that the block was a gift from God and the income tax is his responsibility? Are you seriously going to claim that the basis on the value of the coins at time of receipt without paying income on that basis, or are you suggesting a basis of 0 even though everything referenced by the CPA indicates otherwise? Just for the record, if it's a video game in January and has 0 value, but you bought it as an investment, there is tax code for disposal of worthless assets to go along with the code for cost basis of assets and paying income tax on assets received.
I am not an accountant or a lawyer, so none of this should be construed as financial or legal advice, but I would read the information he refers to (and certain sections of IRS publication 17) before trying to argue a stance against it. Also, I probably wouldn't post on a public forum that I won't be paying taxes unless I believed income tax on US citizens wasn't constitutional or legal and believed I could legally defend my position.